Tesla shares drop 4.62% as California DMV rules violate autonomous driving branding

Tesla Inc. (NASDAQ: TSLA) shares dropped 4.6175% in pre-market trading on December 18, 2025, reversing from recent record highs as regulatory scrutiny over its autonomous driving branding intensified.

The decline followed California’s Department of Motor Vehicles (DMV) formalizing a ruling that Tesla violated state law by using terms like “Autopilot” and “Full Self-Driving Capability” to describe non-autonomous features.

The DMV granted the company 60 days to revise its marketing or face a 30-day sales suspension, raising concerns about potential regulatory actions that could disrupt its largest U.S. market.

Broader market pressures also weighed on the stock, with the Nasdaq Composite and S&P 500 falling 1.8% and 1.2%, respectively. Investor anxiety over the AI sector, including setbacks in Oracle’s AI infrastructure projects, further dampened sentiment. While Tesla’s valuation has long been tied to its robotaxi ambitions, ongoing challenges in its core electric vehicle business and regulatory hurdles highlight the gap between market expectations and operational realities.

Analysts have closely monitored Tesla's stock performance in the context of both technological innovation and legal challenges. The stock's recent volatility reflects broader uncertainties about its market positioning and regulatory future. The company's reliance on forward-looking narratives has, at times, created a disconnect between valuation and near-term profitability.